Despite dip in profits, Behr set for growth thanks to globalization and new products
Despite the increase in sales, EBIT fell by 32 percent to 85 million Euros. Earnings before taxes dropped from 95 million Euros to 40 million Euros. The principal reasons for this were problems in North America and in the industrial business sector, as well as the impact of spiraling raw material prices, in particular for stainless steel.
In the year under review, Behr launched the Group-wide profit-enhancing project "2010" which encompasses all value-added stages, from production and development to administration and sales. The project has the aim of once again achieving a return on sales of 3 percent.
In 2007, 169 million euros were invested in the Behr Group, 12.7 percent more than in the previous year. The main focus was on new machinery and production facilities for the plants in the USA, Mexico, the Czech Republic and Germany.
R&D expenditure was 241 million euros, or 7.1 percent of sales. This represents an increase of 5.2 percent.
At year-end, there were 19,448 employees in the Behr Group, 4.6 percent more than in the previous year. Personnel levels increased mainly in the growth markets of Eastern Europe, India and China. However, the company was also able to create new jobs in Germany.
ROCE (return on capital employed) fell below the previous year s level by 3.3 percentage points to 7.0 percent.
The development of Behr America in the year under review was influenced by two factors: market conditions and fundamental changes to the range of products.
The market decline for passenger cars was greater than average for Behr s main US customers, the Big Three. In addition, there were major fluctuations in delivery call-offs, a further indication of the state of the market. As market leader for heavy- and medium-duty trucks, Behr America felt the full impact of the 36-percent drop in production.
2007 also saw profound upheavals in Behr America s product range. There were new start-ups for all truck engine cooling systems because the company s customers had to adapt to the new US07 emissions standard. Behr was able to substantially expand its customer base for passenger cars and now has significant supplier shares at each of the Big Three, and at their European transplants. However, in order to achieve this, the company had to master the challenge of simultaneously launching six major projects in Dayton.
The heavy strain this caused also resulted in various cost-saving projects being postponed, and the resulting business burdens also impacted on the company s profits. As a whole, the result in the USA was a loss situation, which will continue in 2008, but at a lower level.
"Behr America is now well on the way to achieving good results again in 2010", says Markus Flik, Behr s CEO. Important milestones in this context include the following:
1. Successful negotiations with the labor union at the plant in Dayton, Ohio that have led to substantial cost reductions and greater flexibility.
2. Bundling of all assembly operations for Behr America HVAC modules in Dayton. This was linked with the partial closure of a production facility in Fort Worth. However, we will continue to manufacture spare parts at this location.
3. Stabilization of processes at the North American plants, leading to an increase in productivity. This was achieved with support from the entire Behr Group.
4. The new plant in Mexico has had a successful start-up and is achieving good results in terms of productivity and quality. This provides a solid basis for the further expansion of the plant, in particular for the production of condensers.
Behr Industry has also displayed operational weaknesses over the past year. The company develops and manufactures engine cooling and air conditioning systems, in particular for rail and special vehicles, construction and agricultural machinery, and heavy-duty engines. The strong sales growth of 18.1 percent led to plant capacity overloads and the build-up of substantial backlogs. In addition, the sharp rise in the price of copper had a negative impact on results.
Behr Industry is currently introducing new processes, expanding production in Eastern Germany, and investing in employee training. These measures will already generate a positive result in 2008. In this way, the company is laying the foundations for further profitable growth.
2007 was a good year for Behr Germany, with sales in this region up 5.4 percent to 1 billion Euros compared to the previous year.
Due to the high capacity utilization, by December 31, 2007, the number of employees had risen by 3.1 percent to 7,316, which means that the company was able to create around 230 new jobs in Germany.
In 2007, Behr invested 58 million Euros in Germany, corresponding to approximately one third of the entire investment volume. The main focus was on production facilities designed to facilitate product changeovers.
At the end of February 2008, Behr, together with the works council responsible for the Mühlacker region and the German metalworkers union 'IG Metall reached an agreement to secure the future of the production locations in the Mühlacker region. This laid the foundation for bringing additional production volumes to the plants in Mühlacker, Pforzheim and Vaihingen. The deal entails investments amounting to some 13 million Euros and will help to secure existing jobs and create new employment. "This will secure the future of the locations until at least 2013", explained Wolfgang Schäfer, Behr s CFO.
Growth through globalization and innovation
Behr is continuing to expand its position in the markets of the future. In Brazil, Mexico, Eastern Europe, India, and China, the company was able to boost sales in 2007 by 10.5 percent to 571 million Euros. The new plants in India, China, Mexico and the Czech Republic have started well and are building a solid basis for future projects. In 2010, Behr plans to achieve sales of approximately 700 million euros in these markets.
But Behr is also expanding thanks to product innovations that are helping to reduce CO2 emissions and thus fuel consumption as well:
1. In the air conditioning product segment, the company is reducing CO2 emissions by making further improvements in terms of efficiency, and with the introduction of the new R744 refrigerant.
2. The key trends for Behr in the engine cooling business are turbocharging and exhaust gas recirculation. The combination of the two will enable compliance with stricter emissions standards while offering minimum consumption. Behr is accelerating the development of these systems with new components.
3. The high-performance battery is the central component in every hybrid and electric vehicle. It needs to be actively cooled, and Behr has the expertise to do this.
The global growth in passenger car production will slow to 3 percent in 2008. Western Europe and Japan will remain stable, while a further downturn is expected in North America. Brazil, Eastern Europe, India, and China will continue to expand, but probably at a slower rate than in 2007.
In contrast, the growth trend for truck production should continue, with a global increase of 5 percent. Against earlier expectations, a slight rise could also be achieved in Western Europe. On the other hand, it is doubtful whether the recovery predicted in North America will actually occur.
Behr expects further price increases on the raw material markets for aluminum, stainless steel and plastics.
The Behr Group will continue to grow in 2008, but at a slower rate than in 2007. Business burdens from North America and raw material prices will continue in 2008, and expenditure is planned to ensure further growth. Therefore, despite the first contributions from the "2010" project, the company expects results to remain on the same level as last year.
"We have set ourselves clear targets for 2010: sales of over 3.7 billion Euros, profits equivalent to 3 percent of sales, and an ROCE of over 10 percent", says Flik.
Behr GmbH & Co. KG, based in Stuttgart, Germany, is a systems partner for the international automobile industry. A specialist in automotive air conditioning and engine cooling systems, the Behr Group is one of the world's leading manufacturers and suppliers of original equipment for passenger and commercial vehicles. Group sales in the 2007 business year came to around 3.4 billion euros. Currently, Behr employs some 20,000 staff at 17 development locations, 28 production sites and 12 joint ventures worldwide.